Income distribution and current account: A sectoral perspective

No 125-2013, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: We analyse the link between income distribution and the current account through a descriptive analysis for the G7 countries and a series of panel estimations for the G7 countries and a larger sample of 20 countries for the period 1972-2007. We find that, firstly, rising personal inequality leads to a decrease of household net lending and the current account, ceteris paribus. The effect is strong for top household income shares, but much weaker for the Gini coefficient of household income. This finding is consistent with consumption externalities resulting from upward-looking status comparisons. Secondly, an increase in the corporate financial balance leads to an increase in the current account, i.e., consumers do not fully 'pierce the corporate veil'. There is also tentative evidence that the corporate net lending and the current account increase as a result of a decline in the share of wages in value added. The joint effects of changes in personal and functional income distribution contribute to a significant degree to explaining the global current account imbalances prior to the Great Recession.

Keywords: Income distribution; current account determinants; household saving; corporate saving; panel data analysis (search for similar items in EconPapers)
JEL-codes: C23 E2 E21 F32 F41 G3 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Related works:
Working Paper: Income distribution and the current account: a sectoral perspective (2015)
Working Paper: Income Distribution and Current Account: A Sectoral Perspective (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:125-2013

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